KOLKATA: Vodafone India’s service revenue dropped 29% on-year to 979 million euros (Rs 7,902 crore) in the fourth quarter of 2017-18 as the country’s second-largest telco reeled under the effects of cuts in local and international interconnect rates and price wars ahead of a planned merger with Idea Cellular.

The transaction with Idea Cellular will close in June, Vodafone Group Plc said. The combined entity will become India’s largest telco by revenue and subscribers.

“Vodafone and Idea have agreed on a joint branding policy, in that the architecture is ready and commercial planning for the joint brand will start once we have all regulatory approvals for the merger,” Vodafone Group Chief Executive Officer Vittorio Colao said on an earnings call on Tuesday. Colao is stepping down on October 1 and Group Chief Financial Officer Nick Read will take his place.

The combined entity “will focus immediately on capturing the sizeable cost synergies,” Colao said separately in a statement.

Losses for Vodafone India continued in the January-March quarter as a result of intense price competition and a significant reduction in interconnect charges, Vodafone said in its global results announcement Tuesday. Although Colao declined to hazard a guess on when the price wars in India would ease, he said “any positive movement in prices would lift back the situation.”

“We are getting into a three-player market in India and Vodafone is well positioned for recovery,” said Colao.

He said the planned merger of Indus Towers and Bharti Infratel would “create a monetisable asset that would make the India business very self-supportive and solid.” Last month, the UK’s Vodafone and Bharti Airtel agreed to jointly control the merged tower entity, to be called Indus Towers, as equal shareholders. The merger of the tower companies is expected to close by March.

Vodafone India’s revenue was 1,379 million euros (Rs 10,547 crore) during the fourth quarter a year ago and 1,063 million euros (Rs 8,580 crore) in the October-December quarter.

Revenue for 2017-18 fell 18.9% to Rs 34,855 crore, while the loss for the year narrowed to 1,969 million euros (Rs 15,933.6 crore) from 4,107 million euros (Rs 33,235 crore), helped by an income tax credit of 925 million euros.

The results for FY18 “comprises a non-cash charge of 3,170 million euros (2,245 million euros net of tax) to reduce the carrying value of Vodafone India to fair value less costs to sell,” Vodafone Group said. The fair value of Vodafone Group’s interest in Vodafone India as of March 31, 2018, has been measured in part by Idea’s share price on that date of Rs 75.9.

“Our business managed costs extremely well, which helped mitigate the reduction in our EBITDA margin despite rolling out 50,000 3G/4G sites during the year,” Sunil Sood, managing director of Vodafone India, said in a statement.

The cost initiatives included active network site sharing, renegotiation of tower maintenance contracts and closure of sites with low usage, the company said.

Vodafone India’s average revenue per user (ARPU) in January-March fell to its lowest ever of Rs 105 from Rs 114 in the previous quarter, reflecting the intense pressure on pricing that has plagued the company and its peers – Bharti Airtel and Idea Cellular – following Reliance Jio Infocomm’s entry in September 2016. Airtel’s ARPU in the quarter was Rs 116, Idea’s was Rs 105, lagging behind Jio’s Rs 137.1.

Idea’s net loss widened in the quarter while Bharti Airtel’s India operations posted their first loss in 15 years. Jio increased its sequential net profit by 1.2% to Rs 510 crore.

“Intense competition in India is a euphemism, in that there was an 86% decline in data prices year-on-year, while voice prices fell 40% on-year too. But the good news is that we got 10 million customers in the last quarter but there is a price to be paid for this success,” Colao said.

The company added 76 million data users in the year, taking its total subscriber base to 223 million.

“In India, data traffic quadrupled following a sharp decline in data prices,” Vodafone Group said. Data usage grew more than four-fold in FY18 and more than six-fold in the fourth quarter from a year earlier.

Net debt in India was Rs 62,100 crore, lower than a year earlier, due mainly to favourable forex rates and the sale of its standalone towers to American Tower Corp. for Rs 3,850 crore.

On the tax case arbitration under the Netherlands-India Bilateral Investment Treaty, Vodafone Group said the company will file its response to India’s defence in July and India will respond in December. India’s objections to jurisdiction and the company’s claims are scheduled to be heard together in February 2019.

“More recent attempts by the Indian government to have the jurisdiction arguments heard separately have also failed,” the company added.